State pension board postpones decision on annuities

Back to TopCommentsE-mailPrintBookmark and Share

State pension officials say they want more information from lawmakers before they consider abandoning a plan to privatize one part of a retirement plan for teachers and public employees.

Members of the Indiana Public Retirement System Board of Trustees said Friday they aren’t sure if they can meet a legislative request that they administer an annuity program – which some retired employees use to stretch their savings through retirement – without creating an unfunded liability for the system.

So the board instructed the agency’s staff to work with the legislative Pension Management Oversight Commission to better understand the request.

One lawmaker – Rep. David Niezgodski, D-South Bend – said he was “disappointed” the board opted to postpone and seek more information.

The annuity is one of a two-part retirement system administered by the Public Employees’ Retirement Fund and Teachers’ Retirement Fund. The system includes a defined benefit plan, which is funded by government and schools for its employees, and a savings account that can be funded by employees or employers.

Upon retirement, the worker can take the savings account as a lump sum, roll it into a different retirement account, or convert it to an annuity to spread its benefits over the length of retirement.

Currently, retirees who opt to annuitize their savings can do so with a 7.5-percent interest rate, which is well above market rates and the amount the state is earning off the money that’s invested. The gap creates an unfunded liability that retirement board members decided was no longer acceptable.

So the group voted in July to use market rates for the annuities – and hire an outside vendor to establish the rates and administer the program.

That drew criticism from retirees and the groups that represent them and lawmakers spent hours last month taking testimony on the issue. The change is expected to reduce annuity payouts to future retirees by an average of $900 to $2,100 annually.

Lawmakers were sympathetic to state officials’ concerns that the interest rate is too high to be sustainable – but not to the idea of hiring an outside administer for the annuities. That’s in part because they believe the move would likely push the annuity interest rate lower.

So the advisory commission voted to recommend that the pension agency keep the administration of the annuities in house while establishing an interest rate that doesn’t create an unfunded liability.

But pension officials have argued that by turning the system over to an outside company, the state shifts the financial risks away from taxpayers and retirees. Keeping the annuity program in house means more risk for both groups, said Jeff Hutson, a spokesman for the pensions agency.

The Public Retirement System Board took up the legislative recommendation at a meeting Friday and opted not to act.

“The board was concerned that annuitizing in-house could create unfunded liabilities,” Hutson said. “So, they instructed staff to work with PMOC members for clarification.”

But Niezgodski said there’s no reason for clarification.

“PMOC’s unanimous decision was not confusing nor was there any conflict to leave any doubt about our intent,” he said. “The trustees must accept their responsibilities to the thousands of employees who have entrusted their futures to the state. It is not the time to dump that responsibility onto private interests whose greatest concern is their company quarterly earnings and profit margins.”


  • Re: Natacha
    As with absolutely everything Republican lawmakers do, they are watching out for taxpayer dollars. I would rather NOT see my tax dollars go to fund yet another mismanaged pension. Does Detroit ring a bell? Governments should privatize much more than they do now because they aren't efficient at much of anything... Affordable Care Act ring a bell? The management fees paid to a qualified firm to administer the program will either be less than the cost of incapable people doing it in house or will be more productive cover their cost.
  • Indiana, the wealth-worshipping capital
    As with absolutely everything Republican lawmakers do, they look out first and foremost for their campaign supporters. First and foremost, they're going to try to transfer management of the money to some company which will help itself to management fees. This is what the battle is really over. The advisory commission came up with a reasonable solution, so it's not surprising that it was rejected.

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. I am not by any means judging whether this is a good or bad project. It's pretty simple, the developers are not showing a hardship or need for this economic incentive. It is a vacant field, the easiest for development, and the developer already has the money to invest $26 million for construction. If they can afford that, they can afford to pay property taxes just like the rest of the residents do. As well, an average of $15/hour is an absolute joke in terms of economic development. Get in high paying jobs and maybe there's a different story. But that's the problem with this ask, it is speculative and users are just not known.

  2. Shouldn't this be a museum

  3. I don't have a problem with higher taxes, since it is obvious that our city is not adequately funded. And Ballard doesn't want to admit it, but he has increased taxes indirectly by 1) selling assets and spending the money, 2) letting now private entities increase user fees which were previously capped, 3) by spending reserves, and 4) by heavy dependence on TIFs. At the end, these are all indirect tax increases since someone will eventually have to pay for them. It's mathematics. You put property tax caps ("tax cut"), but you don't cut expenditures (justifiably so), so you increase taxes indirectly.

  4. Marijuana is the safest natural drug grown. Addiction is never physical. Marijuana health benefits are far more reaching then synthesized drugs. Abbott, Lilly, and the thousands of others create poisons and label them as medication. There is no current manufactured drug on the market that does not pose immediate and long term threat to the human anatomy. Certainly the potency of marijuana has increased by hybrids and growing techniques. However, Alcohol has been proven to destroy more families, relationships, cause more deaths and injuries in addition to the damage done to the body. Many confrontations such as domestic violence and other crimes can be attributed to alcohol. The criminal activities and injustices that surround marijuana exists because it is illegal in much of the world. If legalized throughout the world you would see a dramatic decrease in such activities and a savings to many countries for legal prosecutions, incarceration etc in regards to marijuana. It indeed can create wealth for the government by collecting taxes, creating jobs, etc.... I personally do not partake. I do hope it is legalized throughout the world.

  5. Build the resevoir. If built this will provide jobs and a reason to visit Anderson. The city needs to do something to differentiate itself from other cities in the area. Kudos to people with vision that are backing this project.